Dry conditions test Mercury

Record spot prices resulted from sustained dry hydrological conditions and thermal generation constraints, Mercury says of the three months ended March 31.

As a result Mercury has revised its FY2019 EBITDAF guidance from $515 million to $495 million, due to an expected 150gWh reduction in full year forecast hydro generation following continued dry weather in the Taupo area.

Average spot prices for the quarter increased versus the prior comparable period by $77/mWh to $162/mWh at Otahuhu and by $67/mWh to $145/mWh at Benmore, says Mercury in its quarterly operational update.

Waikato catchment inflows were 270gWh below average in the most recent quarter leading to hydro generation decreasing by 273gWh from 1035gWh in the third quarter of FY2018 to 762gWh in the same period for FY2019.

Mercury’s full year hydro generation forecast has been reduced by 150gWh to 4000gWh, the long-run annual average.

Mercury made the most of limited hydro generation as the hydro GWAP/TWAP ratio increased to 1.10 in the third quarter of FY2019 from 1.08 in the prior comparable period. This, combined with steady geothermal generation, led to the LWAP/GWAP ratio decreasing from 1.06 in quarter three FY2018 to 1.05 in quarter three FY2019.

Mercury’s geothermal generation for the quarter was 710gWh, an increase of 74gWh compared to the same period in FY2018 due to planned maintenance outages conducted in that period.

These outages enabled Mercury’s geothermal fleet to provide reliable baseload generation at 98% availability versus 91% in the same period last year.

Futures prices have increased based on thermal fuel uncertainty; while longer-term prices are moderated by new development.

Ongoing uncertainty regarding thermal fuel and plant availability flowed through to the futures market with the Otahuhu futures price for FY2019 increasing by $15/mWh during the quarter to $150/mWh and for FY2020 by $17/mWh to $112/mWh.

New generation development, heralded by Mercury’s Turitea wind farm announcement, moderated the lift in longer-term futures prices with the Otahuhu FY2021 price rising by $8/mWh to $93/mWh over the quarter.

Mercury’s continued focus on customer value has seen the Mass Market VWAP for the nine months to 31 March 2019 increase by $3.2/mWh or 2.6% compared to the same period in FY2018.

Market churn fell for the first time in four quarters, decreasing from 21.3% at the end of quarter two in FY2019 to 20.7% as at 31 March 2019. Mercury group churn also fell from 20.3% to 19.7% over the same period.